Pound To USD Forecast: Is Now A Good Time To Buy US Dollars With Pounds?

The pound-to-US dollar forecast is an indication of where technical and fundamental analysts think the GBPUSD price may be in the future. You can use these exchange rate forecasts to help you decide if now is the right time to buy Dollars, or if you should wait until the price improves.

Highlights

• Inflation rates have remained stickier than anticipated
• GBPUSD broke south beneath key support at 1.250 on dollar strength
• USD strength to prolong due to weakening market sentiment and rising geopolitical tensions

How has the Pound performed against the Dollar recently?

The US dollar has strengthened against many currencies in recent weeks because of one factor: Inflation.

Specifically, US inflation rates have remained far stickier than expected. At the start of this year, investors expected on multiple rate cuts due to falling commodity prices and an uncertain economy. A batch of weak economic data would typically send asset prices racing north. The more speculative, the faster they jumped. Think Bitcoin, or Nvidia (NVDA).

The chart below the Consumer Price Index readings of the American economy. In March, the American core CPI statistic touched 3.8 per cent – a level slightly higher than expectations. There seem to be a floor observed at 3 per cent (see below).

Meanwhile, crude oil prices are venturing into the nineties again. But they were trading at the lowly levels of $68 per barrel just four months back. Being the most important commodity barometer, pricier energy costs are going to feed into higher inflation rates eventually.

On economy activities, the International Monetary Fund (IMF) raised the growth rate of America in 2024 to 2.7 per cent from 2.5 percent. While this may not sound impressive, this predicted GDP growth is more than four times higher than the UK’s. Taken together, traders could no longer see how inflation will fall deep enough for the Fed to cut interest rates 5-6 times this year. May be once or twice.

With these deep rate-cut hopes dashing, traders are rotating back into the USD.

Source: Yardeni.com (April 2024) 

Hence, the GBPUSD has fallen through the multi-month floor at 1.250 (see below). This is a stark reversal of the trend observed in early March, when the exchange rate looked as though it could rally into the 1.300 level.

But we all know that the market sentiment is fickle. The upside breakout at 1.280 was really just a ‘fake out’ and the rate has regressed all the way to the other side.

Is this downside break out another false break? A fair question, given what happened at 1.280. Only time will tell.

The USD is currently strong against many currencies (eg Japanese Yen) and this bullishness is likely to last further than expected. The greenback is like a supertanker and it will take a lot of selling to change its prevailing direction.

Is it a good time to buy US Dollars with pounds?

The past few weeks saw Sterling depreciate against the Dollar due to new macro development.

Currently, at 1.245, the rate is trading at its six-month lows. As the greenback is in good form, should we buy all the dollars now before it appreciates further? A good question. If you do need US dollars now, use any technical bounce 1.250 to buy some.

If you can afford to wait, sticking out into the summer may be an option. The economic data is moving fast and a new direction in inflation trends is not to be ruled out. Market volatility is high these days and who knows, GBPUSD may recover its posture out of the blue.

In summary, I would scale in to buy some dollars on a technical rally if greenback is needed in the near term.

Will the pound get stronger against the USD in the second half of 2024?

One of the general rules in the FX market is that the greenback usually appreciates during a ‘risk off’ phase. As risk appetite wanes, capital flows back to the largest – and most liquid – currency.

We saw this trend occur during the 2008 financial crisis and most recently, the covid pandemic. After a blistering start to the year, a modest market correction (S&P 500 dropped 3.8 per cent from its all-time peak) is directing capital back to the dollar. This time, there is another added advantage: US interest rates. At 5.25 per cent, investors are amply paid to ride out the market storm elsewhere.

Look at the performance of the Dollar Index below. In recent days, the index has strengthened sufficiently to challenge the 2023 resistance highs at 107-108. Chartwise, a decisive break of this ceiling will probably lead to further rallies as there is no further resistance until 110-112.

Given this backdrop, what are the chances of GBP rallying hard against the dollar later this year? Well, GBP needs a few macro catalysts to make a sustained rebound.

Note that the UK economy has been underperforming the US for quite some time. Yes, GBPUSD surged in late 2022 from 1.050 all the way to 1.250. But this rebound occurred only after a steep drop and a new political administration.

Right now, GBP is neither deeply oversold nor due for a new PM in the near term. Inflation data released in April suggest UK inflation is falling (3.2 percent in March). The big question is how sustainable these trends are. Investors aren’t sure. So they are likely to wait on the sidelines until the summer, only then perhaps will the GBP’s foggy outlook brighten.

Based on these observations, GBPUSD is expected to rangebound in the twenties for the foreseeable future. GBP may strengthen from here but this strength could be temporary until macro and political uncertainties fade away.

What is the GBPUSD forecast in weeks, months, and years?

In light of the above-mentioned economic factors, most GBPUSD forecasters are unconvinced GBP will continue to weaken too much from here.

In the next month or so, most GBPUSD forecasts are modestly flat. The natural settled rate is near the technical support at 1.2500 (see below).

If we stretch these forecasts further (1-quarter), the range of forecasts widen dramatically, stretching 1.200 to 1.300. Simply, brokers can’t see where the GBP will trade into the summer.

Therefore, given these wide predictions, I expect GBPUSD to retest the near-term resistance at 1.250 and a period of zigzag sideways moves from here. Further technical support noted at 1.200.

Source: fxstreet.com